3Com, Rumored to be Going Private, Wants All of H3C Joint Venture

Eric Benhamou, 3Com’s chairman, said yesterday in Barcelona that his company wants to become the sole owner of Huawei- 3Com, a joint venture based in Hong Kong that manufactures routers and switches and sells equipment made by 3Com in China and Japan.

The joint venture with Chinese networking powerhouse Huawei accounted for more than half of 3Com’s sales in the quarter ended Sept. 1.

3Com formed the venture with Huawei in November 2003 to enter China. In February, 3Com spent $28 million to buy an additional 2 percent and become the majority shareholder, advancing its share of H3C (as the joint venture is called) from 49 to 51 percent.

In explaining 3Com’s rationale for wanting to own all of H3C, Benhamou said:

It’s a strategic asset, and typically you want to own that. We plan to make significant investments to create the linkage into 3Com’s sales and distribution, so we want to make sure we own it or are on our way to own it.

Benhamou admitted that a gradual approach to increased ownership of joint venture might be a more practical course for 3Com to follow than a sudden buyout of Huawei’s remaining stake.

While 3Com announced its intention to take full control of H3C, rumors circulated that company might be acquired by a private-equity firm. According to a report on Forbes.com, the most persistent rumor has it that an unnamed private equity group is willing to pay $7 per share for 3Com, which current trades at just over $5 per share.

Except for the H3C joint venture, 3Com’s product portfolio is a dog’s breakfast. Growth prospects for 3Com are limited, and any private buyout would have to be predicated on the assumption (or the assurance) that 3Com could gain practically full control over the H3C joint venture.

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